1:47pm PT by Eriq Gardner
David Bergstein's $50 Million Trial Win Reversed by Appeals Court
David Bergstein, the once high-flying movie producer and film financier who is currently facing prosecution for fraud, just had one of his biggest legal victories wiped out. On Thursday, a California appeals court reversed his $50 million trial victory against his former attorney, Susan Tregub.
Back in 2010, as Bergstein became involved in a planned purchase of the Miramax film studio and library, he had five of his companies forced into bankruptcy amid a war with Aramid Entertainment's David Molner. Tregub went to work for Aramid after she left Bergstein, and helped organize creditors and the litigation. Bergstein later alleged she breached fiduciary duty and committed malpractice by disclosing his confidential information.
In 2012, after a trial that saw 12 witnesses, the jury returned its verdict, and a judgment was then entered for about $50 million. The huge result probably provided some satisfaction for Bergstein, who has been credited as a producer on such films as The Whole Ten Yards and Before the Devil Knows You're Dead.
However, Bergstein has been facing severe troubles of late, not least of which is a pending charge from federal prosecutors in New York that he defrauded investors of more than $26 million. He faces up to 95 years in prison for that. (He also lost a defamation lawsuit to The Hollywood Reporter.) Now comes news he can no longer look forward to collecting $50 million in damages from Tregub.
On appeal, Tregub argued that the trial court lacked subject matter jurisdiction because the claims were preempted by federal bankruptcy law. An appeals court rejects this argument, but comes to a different framework whereby reversal is warranted.
"The instant case poses the question whether the actions of the five creditors in filing involuntary bankruptcy petitions, the ensuing law and motion practice in the bankruptcy court, including the appointment of an interim trustee, and then the actions of the trustee itself, together constitute a superseding cause of plaintiffs’ injuries," writes judge Virginia Keeny in Thursday's opinion. "Tregub raised the bankruptcy proceedings as a bar to the damages claims brought against her by plaintiffs in pretrial and posttrial motions, framing the issue as one of preemption under federal bankruptcy law. While Tregub apparently did not raise a proximate cause argument in those motions, her argument that plaintiffs were precluded as a matter of law from pursuing tort claims against her based on damages caused by the bankruptcy actions was sufficient to raise a proximate cause challenge to the plaintiffs’ primary theory of damages."
Keeny says that ordinarily a defendant will be liable for all damages caused by an intentional tort — in this instance, breaching fiduciary duty by masterminding litigation against a former client — but there are circumstances that call for focus on damaged incurred by intervening events.
Here, the intervening cause of Bergstein's injuries is deemed to be the initiation of bankruptcy proceedings against Bergstein's companies, what happened during the bankruptcy, and the publicity stemming from it.
"Thus, while the filing of the bankruptcy petitions was proximately caused by Tregub (and indeed there was substantial evidence she engineered the filings), the ensuing actions taken by the court and trustee were not," writes Keeny. "Tregub may not be held liable, as a matter of law, for the institution of those proceedings, the various actions taken by the bankruptcy court, including the appointment of the interim trustee, the court’s decision to impose terminating sanctions against one or more of the Debtors, and other proceedings and actions of that court. Nor can Tregub be held liable for the conduct of the trustee in failing to exploit the film libraries, or for the attorney fees incurred by plaintiffs as a result of the bankruptcy proceedings."
Meaning, that while there may have been evidence to support Tregub's breach of her duties, much of the later damage isn't necessarily attributable to her. That appears to include actions by the trustees to freeze film library assets as well as bad publicity from news articles reporting on the filing of the bankruptcy petitions.
"Had the evidence been presented to the jury in such a way that it could segregate negative publicity stemming from Tregub’s misconduct other than her orchestration of the bankruptcy proceedings, one might be able to find sufficient evidence in the record to support the jury’s award of damages to Bergstein," continues Keeny. "Bergstein did testify without significant contrary evidence that he was well into a deal with Disney to purchase Miramax (along with a group of investors he had assembled), and that he was promised a 10 percent equity share in the new entity to be created, as well as a principal position with a commensurate salary, and the likelihood of a lucrative consulting agreement. But his testimony about what derailed those plans focused nearly exclusively on the negative publicity from the filing of the five involuntary bankruptcies. He testified that he was told by senior officials at Disney that he could not play a lead role due to the bankruptcy proceedings. He testified that as a result of the negative publicity, other entities refused to do business with him, and various deals fell through."
The California appeals court ultimately directs the trial court to enter judgment in favor of Tregub. Here's the full opinion.